DFW Market - What profit are you making on flips?

Question

I've done a couple flips in the 400k range in the Dallas area lately and am curious what kind of return other investor/flippers are seeing in this market.  Its almost October now and the market seems to have softened a touch, but DFW has great job growth coming as a driving factor so the market should remain one of the best in the country.

I was told I should be making 20%.  But 20 % of what?  Should I be netting $80k on a $400k sale price?  What are you seeing as a net profit on your flips after all expenses including rehab, realtor, closing, and holding costs?

Thanks so much.

Jim Keller · Answer

I have completed 12 deals this year and have 3 going right now.  I have made as little as $16,000 and as much as $82,000.  I typically buy for around $200,000 and sell slfor $300,000 I use a very high leverage hard money loan where I only have a 8% fee or cost and get 100% financing on the purchase and rehab money.

Jim

Rocky V. · Answer

@Andrew Tolleson ARVs were under $100K.  I typically have 70-85% in them ( all in - includes purchase price, rehab, closing cost, commissions, etc.).  I've been choosing to wholetail the majority of my deals.   I primarily deal with all cash in order to save on lender fees and closing cost, otherwise, I would have been negative on 2 deals.

In your example the main factor I would take into consideration is TIME.  Would you be able to buy/rehab/sale property within 3 months?  How much of your actual time would you spend on project?  Now....what's your time worth?  I choose quick cash because that is the best use of my current time and easily profit over $1K/hr based on my actual time spent on projects ( Just wished I worked a 40 hr work week.....lol ).

Hattie Dizmond · Answer

@Andrew Tolleson

(First, because I'm possibly the biggest Rangers homer on BP, are you any relation to Shawn?  He's done an incredible job for us this year!)

OK...now back to the regular program...

I don't think it's really possible to answer your question, because the profit potential is always driven by what you paid for the property in the first place.  We make our money on the purchase, not the sale.  With that said, there is so little inventory in DFW right now, particularly in areas with median prices in the $400k range, that margins on purchases are tighter these days.

I know a couple of investors who won't touch anything with an ROI of less than 20%.  That's fine, if that's what works for them.  But, this is very much like the 70% Rule.  It's a rule of thumb, not a postulate.  In the end, if the amount of profit you are realizing is sufficient for you and justifies the risk/exposure you have in the deal, then it really doesn't matter what % anyone else is talking about.

However, generally, you would calculate the ROI by dividing your profit by the cash you have involved in the deal.  That's a really simply view that works well for shorter flips.  If you start getting into long-term projects, you need to start looking at NPV & IRR, so you account for the time value of money.  That's an entire conversation on project portfolio management that we won't go into here.  But, the ROI goes something like this, assuming these were paid in cash...

$50,000  cash down

$3,000  purchase costs

$60,000  rehab costs

$7,000  holding costs

$120k cash investment

$45,000  net profit (that's less any & all sales costs)

ROI 37.5%

Jim Keller · Answer

I found the home on craigslist, after some hard negotiations I paid $155,000 and it took 2 months to close because of a title issue. The 3 bd 2 bath 1345 Sq ft pool home in Riverside,  Ca needed $39,000 in repairs.  We fixed and upgraded the entire home and site.

We premarket all our homes by holding open houses in Listings close to our flips.  In doing so we just line up buyers for our home.  By doing this we had 3 pre approved buyers on day one, and we sold it to one of them on day one for $298,000 after cost, commissions, construction, everything we made $80K plus and my wife was the listing agent.

All and all a great deal and one you could have bought to if you would have seen it on craigslist like we did.  It's why I love this business 80K just waiting for someone to pick it up off the street.

Good luck

Dmitri L. · Answer

Wow would you care to share more details on the 82k profit deal? I'm assuming that was not a 100k ARV? Hehe

D

Robin Boyer · Answer

Wow 82 thousand dollors!!!

Andrew Tolleson · Answer

Hattie, that's exactly what I said...ha.  Thanks for clarifying though.

Hattie Dizmond · Answer

Nope.  In the scenario you laid out, I would have bought the property at $45k and sold it to my investor buyer for $50k.  The 70% Rule (70% of ARV, less repair cost) is what I want to be able to give it to my investor buyer at.  Therefore, I have to purchase lower than that.

It's the same scenario if I'm flipping it myself, excluding the wholesale fee.  We can't always hit the 70% rule numbers, but we try to ensure there is sufficient profit margin to support the risk, whether we're flipping or wholesaling.

Andrew Tolleson · Answer

Hattie, was that 70% minus repairs minus your wholesale fee?  So if it's a 100k ARV, you bought it for 70k - 20k repairs - 5k wholesale fee = 45k?  I know the numbers may be different but is that roughly your scenario?

Hattie Dizmond · Answer

@Andrew Tolleson I just picked up a property and turned it over as wholesale that was spot on the 70% rule.  It came out of our marketing campaign.  So, yes...there are still 70% deals to be had.

DFW Market - What profit are you making on flips?

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